A look inside KnCMiner, bitcoin mining's dark horse

Amid the loud grandstanding in the ASIC wars, one quiet player has been keeping its powder dry. KnCMiner, a joint venture between an IT consulting firm and a chip designer, recently opened up preorders for its bitcoin mining products. And this week, it announced increases in the performance specifications for its two units, increasing them to a maximum 200 and 400 Gg/s. Sam Cole, cofounder of the company, explains that it prefers to under promise and over deliver. CoinDesk spoke to him about the company's plans.

KnCMiner was conceived in January 2012, when four year-old Swedish IT consulting firm KennemarAndCole AB (KNC) got interested in bitcoins. Along with co-founder Andreas Kennemar, Cole began mining the cryptocurrency on GPUs, but wanted to increase their computing power, so he placed an order with "hardware vendors who are now our competitors," he says. He was frustrated by constant delays.

KNC contacted a Swedish design house called ORSOC, with a view to designing an ASIC miner. ORSOC, which specializes in designing chips and getting them fabricated, wanted more information. Cole and his team set up a website to monitor interest, delivering the information gleaned from that site back to ORSOC.

“Andreas and I saw a hole in the market. We realized that we couldn’t do it on our own, so the best thing to do was to get a design company on board at the same level. They share the risk and the reward. They get heavily rewarded, but only if it succeeds.”

Who does what

Responsibilities are carved up pretty neatly between the two companies. ORSOC handles the back-end design work for the chips and the rest of the mining product. KNC handles the front-of-house activites, including administration, reporting, and web sites.

Working with a chip designer has its advantages. The firm is promising a 28 nm ASIC design, which compares favorably to the 110 nm design used by BitSynCom for its Avalon chips, and the 65 nm design used by Butterfly Labs. But it's doing this for a reason.

“The reason we chose 28 nm is because we aren't the first to the market,” says Cole. Avalon and Butterfly Labs are ahead in terms of chip delivery, in spite of multiple delays. KnCMiner doesn't expect to ship its units until September, which puts it behind the curve in a game which is all about being first to market, taking advantage of high hash rates before a flood of ASIC products increases network difficulty.

“We saw that the market was big enough to pre-fund the millions of dollars that you need for a 28 nm product. We decided that if we're going to go, we're going to go all-in to the very edge of the technology”.

The standard thing in your house should be a microwave, a fridge, and a bitcoin generator.

The high end of the market

That makes for great technology, but it also alters the business model. Tooling up for 28 nm fabrication is an expensive proposition. This money is sucked up by the non-recurring engineering (NRE) costs, which must be laid out to get the first chip. The NRE increases dramatically with the chip density.

The NRE costs for tooling up the fabrication partner’s plant will be at least $3.5m, he says. This is why the company is now taking pre-orders for the product. It said that it wouldn’t take pre-orders until it was close to delivery and now feels ready. It also needs the money to pre-fund the NRE, which is why it hasn’t chosen to mine using its own rigs, as ASICminer has done.

“We will keep mining to a minimum,” he says. “But we effectively crowdfunded this. That means that we share the device with the people that order from us. We are giving something back. The people that did do the preorders and those that continue to do the preorders will get the benefits because we couldn't do it ourselves.

“We can't take them and put them into a 5Gh device. We can only cater to the high end of the market,” says Cole. “Our cheapest product is a $4,000 unit with two chips.”

On the other hand, customers will be getting a lot of compute power for their money. It sells two basic units: the Saturn, and the Jupiter. The Saturn is the lower-end device of its range, featuring a 200 Gh/sec performance (originally 175 Gh/sec, but updated this week). That costs $3795, and runs at a maximum power consumption of 500 W, giving it a theoretical 2.5 Gh/s for every watt. Its big brother will sell for $6995. That offers 400 Gh/sec, and runs at a maximum 1000 W, scaling exactly in has-per-watt terms.

If the company delivers, that will blow competitors out of the water. Butterfly Labs' 500 Gh/sec miner is said to consume 2300 W, equating to 4.6 Gh/s for every watt, drastically fallen short of its original estimates, as we predicted. It also costs over 2.5 times as much per watt as the KnCMiner Jupiter rig. Relatively speaking, BFL customers are paying an awful lot of money for the privilege of being first.

Perhaps this is why, even though pricing is still lofty, KnCMiner is seeing more bedroom hobbyists that it thought in the initial preorder queue. Those who can stump up the cash are piling in. "We don't have many customers ordering multiple devices," Cole says. "We originally stipulated a five box limit, but then we realized that the vast majority of the boxes are going to single people."

Plug and play

The idea behind these boxes is to make them as simple as possible to run, he says. Closer to the shipment date, he plans to contact customers in the queue, and ask them for details including a bitcoin address. KnCMiner will then configure each device to sent bits automatically to that address when mining. It would also test each device against that wallet with those details. "Then you ship the device to them, and they plug it in, and turn it on, and walk away," he says.

This is one of the reasons that the company will not sell chips directly to OEMs, as BitSynCom and Butterfly Labs have elected to do. “It's far too geeky a game for us to play,” he argues, asserting that the company only wants to play in the fully-assembled device market. “The standard thing in your house should be a microwave, a fridge, and a bitcoin generator.”

From Jupiter to Mars

This is not the only device that the company has been working on. It initially produced a prototype box called Mars, which was an FPGA miner. Developed as an engineering proof of concept, the company was initially to offer it as a product, but decided to discontinue it around the start of June, when Butterfly Labs began early shipments of its own ASIC units. Mars offered seven Gh/s. "Is good as it is, it wouldn't have provided a good rate of return," says Cole. When the company bought forward its own ASIC shipment, it effectively killed the product’s prospects, he says. “Customers would only have had a two-month window to get their money back on a $2795 product.”

Nevertheless, prospects for FPGAs in general are far from bleak, Cole asserts. The company is planning an FPGA targeting the Scrypt-based altcurrency market, dominated by Litecoin, but with many other competitors. Users will be able to visit the KnCMiner website and download software to reprogram FPGA chips to mine any new coin that emerges as a contender, he promises. "That means that we can sell a $3000-$4000 product that returns your investment," he says, but adds that it must be more functional than Mars. "It needs memory channels, the ability to be reprogrammed, and probably its own web interface."

There is no timeline for that product yet. The company is concentrating on getting Saturn and Jupiter out of the door first. And customers are eager to get them. If he's right, these ASICs will send the difficulty soaring along with the hash rate. Today, the bitcoin network runs at 156 Th/sec, give or take.

A race to the finish

“Currently we're looking at 450 Th/sec that we expect to enter the network between September and the end of October,” Cole predicts. That will mean substantially increased difficulty as more miners come onstream.

“We know we're taking it higher. Difficulty is going to increase, so we have to ensure that customers will deliver a big return on investment.”

“The longevity depends on the coin price. We can try to make the most efficient device possible to give the most hashes per dollar (or per watt) but at the end of the day, as long as it costs less money to run then there will always be a return.” The early adopters are likely to get good returns, but they might not be measured in days or weeks going forward, he argues. What does this mean if, say, you’re booking a miner today, which won’t arrive until October? Someone has tried to estimate it here, although this shouldn’t be taken as definitive.

So, when will the first boxes arrive? The company won’t say more than September, and won’t lock down a specific date. It will be offering hosting services from the start, however. If you buy a box, it will run it in a Swedish datacenter as a turnkey service for an as-yet unannounced price. In the future, it may offer ‘shares’ in boxes for those people unable or unwilling to afford a whole one. This assumes that no one else offers such a service first, he says.

And where does this leave all of the GPU miners? “We are expecting most of the GPUs to be offline before we get in,” concludes Cole. “If the coin price does go high enough, then people can turn their GPU miners back on.

"We hope that the coin price rises, of course. I think everyone does.”